On the heels of Judge Richard Sullivan’s February 8th pre-trial order denying their motion to dismiss (see here for the prior post), former Magyar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai have moved to certify Judge Sullivan’s order for interlocutory appeal to the Second Circuit.

“To satisfy the statutory prerequisites to certification [... the defendants] must show that there is substantial ground for difference of opinion on the issues presented.

“The defendants respectfully submit that there is substantial ground for difference of opinion regarding the following three questions that lie at the heart of the Order: (i) whether the Court may exercise personal jurisdiction over the defendants; (ii) whether the SEC’s actions is barred by the applicable statute of limitations; and (iii) whether the SEC has adequately pled the use of an instrumentality of interstate commerce. As explained more fully below, immediate appellate consideration of these questions is warranted in view of the overwhelming cost in time and money of proceeding to full-blown merits discovery and trial in this case. As the parties have already informed the Court by letter and proposed scheduling order dated October 3, 2012, merits discovery is expected to last approximately thirty months and will require teams of lawyers to traverse thousands of miles, review millions of documents in foreign languages, depose scores of foreign witnesses in foreign languages and in multiple countries, and negotiate the complexities of foreign law – all with the Court’s frequent oversight and assistance with regard to the Hague Convention process for gathering evidence abroad and related matters. The extraordinary resources needed to develop a complete factual record and bring this case to trial, which would include many millions of dollars to finance the defense of the case and the SEC’s prosecution of it, will be wasted if the Second Circuit reverses any part of the Order after trial, and would thus render unreasonable requiring these Hungarian defendants to travel thousands of miles from their homes to defend themselves. The defendants respectfully submit that the questions presented here for certification, coupled with the huge resource outlay contemplated already by both sides if merits discovery should proceed, make this case ripe for early albeit limited appellate review. This case is simply not a run-of-the-mill piece of litigation.

With regard to the first question presented of personal jurisdiction, prior to the Order no court had ever held that personal jurisdiction may be asserted in an FCPA action over foreign defendants whose sole contact with the United States involved signing allegedly false management certifications and sub-certifications, which the complaint fails to allege even reached or had any impact in the United States. Absent a clear directive from Second Circuit or Supreme Court precedent, the caution that attends application of the Constitutional ‘minimum contacts’ standard in the international context in evaluating a foreign national defendant’s motion to dismiss on jurisdictional grounds - acknowledged most recently by another judge of this Court in SEC v. Sharef - should militate against an unprecedented broadening of the reach of United States courts. Furthermore, relying on the defendants’ alleged preparation of either non-alleged or unfiled SEC filings to anchor the assertion of jurisdiction over them specifically as to the bribery counts in the complaint – which the SEC conceded at oral argument have ‘little, if any, connection to the United States,’ strayed from the obligation to evaluate personal jurisdiction on a per-claim basis. Second, turning to the timeliness question, the Order represents the first modern interpretation and application of 28 USC 2462 to foreign defendants who are not found within the United States during the pertinent five-year period but who are nevertheless readily served. Despite the Order’s ‘plain language’ analysis, the text and legislative history of the statute are ambiguous and there is a dearth of controlling authority on point, causing reasonable minds to disagree about the statute’s meaning. It seems doubtful that Congress intended to toll the statute indefinitely for defendants residing outside the United States who can be readily served, as the SEC contends, and comparable authority suggests an outcome different from that reached in the Order. Third, as the Court itself recognized, whether the use of an instrumentality of interstate commerce includes an intent or even some knowledge element is an issue of first impression in the FCPA context for which the text of the statute offers inadequate guidance.”

*****

A footnote in the above brief indicates that the SEC intends to oppose the motion for interlocutory appeal.

The case cite, SEC v. Sharef, refers to Judge Shira Scheindlin’s February 19th decision in the SEC’s enforcement against Herbert Steffen (a former Siemens executive). See here for the prior post.